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September 27th, 2016
Maximising your superannuation and investing in your own future is a hallmark of any savvy Australian. For doctors, who spend a few additional years in training compared to most other university trained professionals, starting your plan early is doubly important.
If you haven’t started yet, it’s not the end of the world. However the sooner you begin, the sooner you’ll reap the benefits – and the larger those benefits will be.
To help you out a little on this subject, we’ll go through a few important notes on investment, property and savings that’ll help make organising your super plan a little simpler.
One of the first things you need to know when planning a long-term superannuation strategy is the money in your super is taxed at a much more lenient rate than the money you earn day-to-day. Understanding the rates at which super can be taxed is your first step to unlocking a whole host of investment and borrowing strategies that can piggyback off of this reduced rate.
The tax rate on your super contributions is currently at 15%, which is similar to the effective tax rate someone earning roughly in the middle of the $37,000-$80,000 tax bracket would pay.
For most doctors, you’ll be earning well above that price range once you become fully qualified, and you’ll be taxed accordingly. Luckily, you can ease this tax amount through making regular super contributions.
Note: Division 293 tax is an additional 15% tax imposed on relevant concessionally taxed superannuation contributions (referred to as low tax contributions) made to superannuation funds (including SMSFs) by individuals whose income exceeds $300,000.
Enter salary sacrificing. By sacrificing part of your paycheck to make an additional contribution to your super, you’ll be taxed for that contribution at less than 15% as a separate figure to your regular PAYG. This not only helps you with your taxes, but also helps raise more money for your retirement.
This kind of agreement is usually made with your place of employment (even if you’re self-employed, as the funds are, legally speaking, employer contributions to the fund). The vast majority of workplaces – especially those who employ high earners such as medical practitioners – will already have some kind of scheme in place, or have similar agreements with other employees.
There’s no upper limit to salary sacrifice contributions, but if you’re a high contributor already it might send you over the superannuation contribution threshold. Going over the threshold means paying an additional tax over the 15% cap.
Check out the Australian Taxation Office’s page on salary sacrificing for more information.
There is, unfortunately, a pesky cap on our yearly super contributions. Your age and marginal tax rate are the main deciding factors determining what your super cap is, but as of 1st of July 2014, for most people the maximum yearly contribution is $30,000.
People over 49 will be able to squeeze in a little more with a maximum cap of $35,000, but it’s nowhere near the old $100,000 model.
However, the superannuation environment is constantly changing – so please contact us to find out what the current situation is.
As any investor will tell you, the most surefire way to keep above the game is to diversify your investment portfolio. Your superannuation, by the time of your retirement, will be a veritable hydra of investments, including local and international investments in property and shares, bonds, and similar.
Diversification lowers your investment risk, as by having many sources of income you’ll be less affected if one of your assets fails or diminishes in value. Something as important as your long-term retirement savings realistically can’t be riding on the back of one or two investments.
Most Self Managed Superannuation Funds (SMSF) will give you a wide range of choices, provide you with advice on how to best maximise your profits (after all, it’s in everybody’s interest for your investments to succeed), and will steer you towards diversification as a matter of course. Ultimately however, the choice is up to you.
Through a proxy of a trust operated by your SMSF, you can borrow money to invest in property from your own superannuation, with the income derived from the property being the main source of repayments and serving as security for the loan itself.
Borrowing in this manner means you’ll save massively on Capital Gains Tax, as well as open up further tax breaks within your SMSF.
The nitty gritty of this can be extremely complicated. Contact us if you’re considering doing this, as some of the laws and obligations can be a navigational nightmare. Why not leave it to the professionals, and rest knowing your money and savings are in safe hands.